Model Case Study: USDA Community Facilities Rural Health Clinic

A 10,000 SF owned clinic for a rural nonprofit, financed with a $4,400,000 Community Facilities direct loan, $1,284,000 of local money and a $736,000 Community Facilities grant. The case shows how the grant is sized as the residual gap, how coverage is tested under the Community Facilities standard rather than a Business and Industry DSCR, and why the ramp years, not the stabilized year, decide the structure.

This is a model study. The subject, Cedar Fork Community Health Association, is a fictional nonprofit in a fictional town of 7,400 residents. No client data was used. Program rules, payment limits and benchmarks are cited to their sources; operating inputs are model assumptions and are labeled as such in the workbook, where every figure on this page traces to a cell.

As proposed, the loan amortizes from the first year and the clinic ramps from 15,000 visits to 20,000. Coverage is negative (a shortfall of $420,006 after debt service and reserve) in Year 1 and 0.23x in Year 2, reaching 1.26x in the first stabilized year. The cumulative shortfall through Year 5 is ($192,989). Two years of debt service would have to come from the same reserves the applicant is contributing to the project, which is not a structure the 1942.17(h) revenue-sufficiency test accepts.

As restructured, three changes close the gap without changing the loan amount or the grant. First, the 36-month principal deferral available under 7 CFR 1942.17(f)(7)(i) reduces debt service to interest only, $198,000 a year, through the ramp, with amortization over the remaining 444 months at $244,378 a year from Year 4. Second, the county pledges $100,000 a year of operating support as assured income, which sits first in the nonprofit security order under 7 CFR 1942.17(g)(3)(iii)(A)(1). Third, the applicant retains working capital outside the project budget sufficient to carry the Year 1 shortfall. Coverage is negative (a shortfall of $281,338 after debt service and reserve) in Year 1, 0.73x in Year 2, 1.95x in Year 3 and 1.90x in the first amortizing year. Excluding the pledge, the first amortizing year covers 1.50x. The cumulative position through Year 5 is $433,229.

The volume cushion is thin either way. In Year 4 the restructured case breaks even at 18,910 visits with the pledge and 19,575 without it, against a base of 20,400. The independent feasibility study therefore has to document demand, and the conditions below are written around that.

Cedar Fork Community Health Association has operated a 4,500 SF leased rural health clinic for more than five years, which satisfies the five-year operating test in the CF Direct Loan Guidance Book and allows real property and income to serve as security. It will build a 10,000 SF owned clinic with 8,800 SF of clinic space and a 1,200 SF retail pharmacy suite leased to a private operator. The clinic is an independent Rural Health Clinic paid at the national all-inclusive rate limit, which CMS set at $165.00 per visit for CY 2026 (MM14303, Transmittal R13505CP). It remains independent rather than seeking FQHC status, because FQHC economics (a CY 2026 PPS base of $207.72 and a 2024 medical cost per visit of $272.20 under HRSA UDS data) bring governance and sliding-fee obligations the board has not taken on.

Health care is an essential community facility under 7 CFR 5001.3 and an eligible CF project under 5001.103(a)(1). CF direct loans and grants are limited to rural areas and towns of up to 20,000 residents; Cedar Fork's 7,400 residents qualify. Three provisions shape the structure:

Rates are a live input. The most recently published CF direct rates, 4.500 percent poverty, 4.625 percent intermediate and 4.750 percent market, ran from April 1 to September 30, 2026. No rates for the period beginning October 1, 2026 had been posted at the date of record, so the first condition is a rate confirmation with the State Office and, if the rate has risen, a written request for the lower of the approval or closing rate under 1942.17(f)(1).

Building hard cost is $400 per SF and is a model assumption to be replaced by the Preliminary Architectural Report estimate. Interim interest is a loan-eligible cost but is not grant-eligible (7 CFR 3570.63(a)(4)), and the pharmacy suite's share of hard cost is fenced from grant dollars, which together define the grant-eligible base below.

The grant is sized last. The loan is sized first to the coverage convention, the local contribution is fixed at $1,284,000, and the grant is the residual: $6,420,000 less $4,400,000 less $1,284,000 equals $736,000. Under 7 CFR 3570.66(b) the grant is the lowest of three limits:

Local money at 20.0 percent of cost earns joint-financing priority points under 1942.17(c)(2)(iii)(D)(3)(iii). Putting the grant on equipment keeps the 40-year loan secured by long-lived real estate, consistent with the useful-life limit in 1942.17(f)(7), and the Guidance Book makes RD grant funds the last money advanced. Emergency Rural Health Care grants were a one-time American Rescue Plan program and are not assumed. New Markets Tax Credits, made permanent at $5 billion a year with the CY 2026 round open, are not modeled at this project size because the leverage-loan structure would have to be fitted to RD's parity and security rules in 1942.17(g)(1).

Volume ramps from 15,000 visits in Year 1 to 20,000 in Year 3, then grows 2.0 percent a year. Stabilized capacity is 2.0 physician FTE at 3,800 visits, 4.0 NP/PA FTE at 2,800 and 1.0 behavioral health FTE at 1,200, which sits below the NARHC/Wipfli independent RHC productivity means and above the CMS productivity screens of 4,200 and 2,100. Net revenue per visit of $155.50 in Year 1 is the weighted result of the payer mix in the workbook (Medicare FFS 22 percent at $160, inside the $165 limit; Medicare Advantage 10 percent at $140; Medicaid 28 percent at $170; commercial 30 percent at $180; self-pay 10 percent at $47) and grows 2.5 percent a year from Year 2. Medicare Advantage, Medicaid and commercial rates are model inputs; the State RHC PPS rate must be obtained. Expenses inflate 2.5 percent a year from Year 2; support and administrative staffing is carried at 85.0 percent and 95.0 percent of the stabilized level in Years 1 and 2.

Stabilized O&M of $151.82 per visit in Year 3 sits below the NARHC/Wipfli benchmark allowable cost per encounter of $155.18 to $169.36, which is consistent because the benchmark includes depreciation and facility cost that this model carries through debt service and reserves. The capital asset replacement reserve, required under 1942.17(i)(2), is 7.5 percent of equipment cost a year.

Coverage is net revenue available for debt service divided by debt service plus the debt service reserve deposit, which 1942.17(i)(2) requires to build at no less than one tenth of an average installment a year until one installment is held.

Year 4 is the first amortizing year in the restructured case and the year a lender will test. Contribution per visit is net revenue per visit plus ancillary revenue less variable supplies, $162.07 in the base case.

A five percent volume miss alone leaves coverage at 1.28x; the same miss without the county pledge leaves 0.88x. The pledge, not the margin, is what carries a soft year. The market-rate case shows what an October 2026 rate increase would cost.